Thursday, September 29, 2005

The Dutch newswebsite Nu.nl writes an article on mobile operators that blame the Dutch banks that the mobile operators can't get a foothold in payments. It's an interesting read given that:-Vodafone and KPN could have chosen to continue Simpay rather than stop it...-both companies are already highly active in this market, -more than 1 million phone-minutes occur every day-more sms-payments occur than e-purse payments,-the mobile operators themselves have blocked new players as moxmo and digipay from entering the market of mobile phone payments.

So what's up...? I think it's an effort of mobile operators to ensure attention for the review of the e-money directive. The operators want to codify the current under-the-desk-exemption-regime for mobile operators in the text of the new e-money directive. This regime essentially means that supervisors look the other way and do not apply the regular banking and payment rules to the mobile industry (while applying those rules to any other player who wants to do exactly the same... Paypal for instance). And they use publicity and lobby to ensure that the Ministries of Finance and EU Commission (who bought into this back-room deal) can point at the operator's position to legitimize this codified exemption in the new e-money directive.

If that strategy really works, the real rules of the European game essentially are that it pays to ignore formal EU-rules if you make sure that you strike a behind-the-doors deal with regulators and supervisors. All formal speeches by McCreevy, Kroes can then be viewed as smokescreens of bureaucrats who essentially care for their own position rather than for a Europe which is based on open, true competition and transparant regulators that simply do what they're told by parliament (rather than striking back-office deals without involving parliament).

The Dutch socialist party is republishing an initiative that dates from 4 years ago. The initiative aims at keeping bank branches open and obliging banks to do so. There's one minor detail missing however. And that's the original problem.

Originally in 2001, the problem was that elections were coming up and the socialist party sought an issue to become popular with the public. And bank bashing always works of course (it's also a popular strategy of the European Commission to increase its popularity), so the PvdA chose to do so as well. Quite some customers were confronted with banks that chose toclose down local branches in favor of more modern means of communication and service delivery (phone, Internet). And so the plan was born to oblige banks to offer services and ensure that a bank branch was close to every 10.000 inhabitants.

When, after some discussions with banks, it turned out that the banks already fulfilled this criterion, the idea was to change the proposal and require that for every 5000 inhabitants a branch should exist (in fact a branch that would be a white labeled office allowing all bank customers to do business there). And in order to sell the idea, the concept/ideology of universal services obligation was used.

Meanwhile the public adapted to technology, new distribution channels started to take over the role of branches. But PvdA member of parliament Ferd Crone kept on revising his proposal and started an legislative initiative.

Why he has now sent it to parliament is a complete mystery. In september 2004, the Council of State advised negative: it saw no reason for legislation. The Ministry of Finance stated at the end of 2004 it deemed the proposal to be disproportionate and unnessecary. The Dutch platform for payment systems found the problem to be limited to single areas only. Furthermore a renowned Dutch expert on Universal services (van Damme) analyzed the issue and did not find a need for the legislative proposal.

I'm curious to find out if there is more to this than is apparent to the eye; otherwise I would not understand why the socialists maintain this initiative. Unless of course if this is already their first step towards the new elections......?

Tuesday, September 27, 2005

The papers and presentations from last week's NY Fed conference on "Antitrust Activity in Card-Based Payment Systems: Causes and Consequences" are now available online.

My personal favorite is a paper by Guerin-Calvert and Ordover, which contains goodies such as:This accelerating focus on cost-based regulation of interchange fees is also quite perplexing in view of the common recognition among economists and policy makers that heavy-handed price regulation is rarely desirable and risks unintended consequences (such as suppression of incentives to invest and innovate, and shifting of cost burdens to consumers) that can distort markets.

This focus on direct ex ante price regulation as a policy instrument to address perceived inefficiencies in the marketplace is at odds with the broadly accepted principles that the standard antitrust enforcement “toolbox,” which has historically been used to address concerns about non-competitive pricing, barriers to entry, or other impediments to competitive functioning of the marketplace, provides a better approach than price regulation to achieving efficient functioning of markets (other than natural monopolies, perhaps) such as the credit card and debit card markets.

The trend toward direct regulatory intervention is thus questionable given the nascent stage of empirical work on estimates of benefits to merchants from debit and credit card networks, and the complex inter-relationships between network-level investments, card usage, and the delivery of such benefits. Indeed, much of the available literature and policy pronouncements define “benefits” to merchants too narrowly and thus tend to understate these by confining them to transactional gains, while omitting from the assessment the broader benefits provided by credit card and debit card networks.

Monday, September 26, 2005

The EU-market finally opens: central banks and regulators can no longer silently back nationalistic plans to keep the business domestic. As a result we will see some more cross-country mergers, so that in a timespan of 15 years, domestic orientations of regulators, bank-associations, pressure groups etc. will not make sense any more.

The new divide may be based on scale (big banks vs smaller banks); on risk profile (risky and inexpensive banks vs low-risk, expensive banks). Or any other orientation for that matter. No-one really knows which paradigm to shift to... but time will surely tell.

Sunday, September 25, 2005

One and a half year ago, the IMF looked for a solution to automate bill payments in Kosovo. Knowing the Dutch acceptgiro-system, the question was if that could be made to work in Kosovo, but then with an optical barcode. Dutch payments consultant Stefan Gonggrijp assisted the Kosovo community onsite and here it is: the Kosgiro.

Right now it is a trial. And the work on fees and interchange fees has not yet been finished. But it is a promising start, to say the least.

And I should say, it's the speeches of McCreevy that make my eyes water:Now, my focus is firmly on making it work. Regulation, if it is not implemented effectively and enforced responsibly, is useless. Much remains to be done on this front. The EU single market can only develop effectively if actors understand the need for cooperation and regulatory convergence, and work together to find common rules. And to stick to those rules once they have been agreed.

The emphasis should not only be on speed of transposition, but also on quality. Ensuring a level playing field is the key to Europe’s success. For this, the day-to-day implementation of EU rules should be done in a consistent and coherent way. The Commission is determined in its efforts to ensure that European market players can enjoy all the advantages that the EU regulatory framework offers them.

Now if McCreevy were only to apply these words to his own impact assessment for the new legal framework for payments in the internal market. That is really a piece of work that has few analytical qualities, if any. It serves to back a harmonisation of payment rules in Europe in order to stimulate a level playing field and competition in a truly European market. But as I see it, the actual impact/effect of the proposed laws will be that it will become exterme costly to be in payment business. High prescribed levels of consumer protection and the costs of supervision will have to be bourne by providers. And by raising the overall costs, the number of payment service providers in Europe will decrease rather than increase. And competition will be less rather than more.

Wednesday, September 21, 2005

Interpay, the Dutch payment processor, will end its Internet-cash register services to banks. This is the result of reshaping of the market where Interpay has no more direct contact with end-users of payment services but only with banks. In a similar move, the contracts for POS-switching services have all been migrated to banks. And now the Internet cash register services are stopped.

Interpay's customers, amongst which the Chambers of Commerce, some municipalities and some banks, will need to find alternatives. One of those is Ogone. But there are of course many more players in this market...

Thursday, September 15, 2005

See Finextra:
A group of 13 bank-owned payment processors have banded together to explore the possibility of creating a Sepa-compliant IP-based network, bypassing Visa and MasterCard, and enabling cross-border ATM and POS transactions in the eurozone.

Interesting enough, it may be this move towards Europe that could make it impossible to maintain a European experience for consumers. Right now consumers have a cobranded card with a domestic scheme and an international scheme. However, the international brands will not be likely to allow the domestic scheme to reside on the card if this domestic scheme turns out to be international as well.

So, thanks to the pressure of European Regulators, the forward thinking of domestic schemes and the defenses of international card schemes consumers may end up with less pan-European payment facilities on their card rather than more.....

Just another sign that regulators should not pressure cook a market and try to shape it into a specific form (which reminds me too mich of the outdated sixties approach to shaping society in a positive form) but should only take action where basis competition rules are violated...

Sunday, September 11, 2005

At Sibos 2005 Copenhagen, Microsoft announced that it is working with Unisys to deliver a common European platform to help financial institutions better manage cross-border payments operations. Based on Microsoft(R) BizTalk(R) Server 2004, EBA Link is currently implemented at a number of financial institutions in Poland and Hungary. The solution grew from work done by Interpay Nederland, a top-three European payment processor located in the Netherlands, to clear high-volume, low-value payments. It provides a fast and cost-effective service for cross-border payments.

Thursday, September 08, 2005

The OFT has found that a collective agreement between members of MasterCard UK Members Forum (MMF), including most major banks, setting the multi-lateral interchange fee (the MMF MIF) paid on virtually all purchases in the UK made using UK-issued MasterCard credit and charge cards between 1 March 2000 and 18 November 2004 restricted competition and infringed Article 81 of the EC Treaty and the Chapter I prohibition of the Competition Act.

And of course I should not forget that to mention that the ESCB has issued a policy statement which essentially reads that central banks will price their settlement systems on the basis of cost-recovery. And the non-Euro national central banks also subscribe to this vision.

What's interesting is the redundancy of this statement. According to their statute the ESCB is already held to act in accordance with the principle of an open market economy with free competition, favouring an efficient allocation of resources. So why bother issuing a separate statement? Generally such reassuring statements, coming out of the blue, can be understood to imply the reverse.

And another question. Who checks this policy principle? Are we just to take the central banks word for it? Or are accountants checking this and issuing declarations of conformance..? The recent Italian affairs have made it clear that also central banks are prone to make misstakes just as any other organisation.